High Probability Trading Strategies

Today I finished reading " High Probability Trading Strategies" by Robert C. Miner. This book accompanies with 2 hrs video CD which includes examples of how to apply the high probability trading strategies for many markets and time frames with bar-by-bar and step-by-step recording. Also the author has devoted an entire chapter called "Real Traders, Real Time" with trade examples submitted by his past students.

The book includes four key factors of dual time frame momentum, pattern, price and time. 

Here is what I learnt from this book.

• Dual Time Frame Momentum Strategy:

• A Larger time frame to identify trade direction and a smaller time frame for trade execution setups.
• Traders with different time frame.
• Positional trader  : weekly and daily charts
•  Swing trader      :  Daily and hourly charts
• Day trader           :  60 mins and 15 mins
• Main Indicators:
• Stochastic: It includes overbought(OB) and Oversold (OS) zones. Line above 75% indicates overbought and below 25% oversold. 
• MACD Histogram: It measures the difference between two moving averages.

• Pattern Recognition for Trends and Corrections:

• ABC correction: It is a frequent type of correction for all markets and all time frame in 3 swings. Below are some guidelines.

• The Wave-C should exceed the extreme of Wave-A.
• If the market trades back into the range of Wave-A, the minimum conditions for a correction are complete.
• A trade beyond the Wave-B extreme is a pattern signal that the correction should be complete.

• Five- wave patterns ( Eilliot Wave): The five wave trend pattern make five sections and the section do not overlap, is called an impluse wave. Some of the guidelines are below.

• Wave -2 cannot trade beyond the beginning of Wave -1.
• Wave - 3 cannot be the shortest in price of waves 1, 3, and 5.
• Wave - 4 cannot make a daily close into the closing range of Wave-1.

• Beyond Fibonacci Retracement: 

• Alternate Price Projections (APP): 
• It compares the price range of swings in the same direction also called as price extensions.
• Frequently used APP are 61.8%, 100% and 162%.
• APP made of three pivot points, the price range between two pivots is measured and projected from a third pivot.

• Internal Retracement:
• are 38%, 50%, 61.8% and 78.6%
• The  38.2% level is temporary support or resistance.
• The 78.6% retracement is typically the maximum retracement for a correction. If a market closes above the 78.6% retracement, typically it is not making a correction but will continue to trend to a new high or low.

• External Retracement:
• are 127%, 162% and 262%.
• are important to help identify the final section of a trend or countertrend.
• are not used on their own for price targets, but to confirm an alternate price projection and or internal retracement.

• End Of Wave-C:
• ABC correction ends with Wave-C, which should include internal retracement and an APP.
• Internal retracement are first in the order of importance of the three sets of projections, since most corrections end near one of the four internal retracement.

• Entry Exit Strategies and Position size:

• Trailing One Bar Entry and Stop:
• Following a smaller time frame momentum reversal in the direction of the larger time frame.
• The entry price is trailed one tick above/below the last completed bar.
• When the trade entry order is executed, the initial protective stop is placed one tick below/above the swing high/low made prior to entry.

• Position Size:
• Formula to calculated position size is:

Available Capital X 3% / Risk per Unit = Maximum position size.

• Exit Strategy Concept:
• Use of Trailing stop, never exit at a predetermined price target.

All four strategies momentum, pattern, price and time together help to develop a trading plan that includes entry and exit strategies and trade management.

This book is not difficult to read and understand, but the reader must spend time learning and practicing each strategy. I took almost 2 month to read this book and currently practicing and implementing each strategy.

This is very practical book and would recommend to every trader and investor. The author also post blog on his website http://www.highprobabilitytradingstrategies.com/blog/

Thanks Robert!!!